China's far west Xinjiang Uygur Autonomous Region is set to become a new industrial powerhouse, as the first car rolled off the production line of Shanghai Volkswagen, a joint venture with the German car maker, here on Thursday.
The plant in the regional capital of Urumqi expects an annual production of 50,000 units of the new Santana, with the first phase of investment close to 2 billion yuan (325 million U.S. dollars).
It is a big step for Volkswagen, becoming a pioneer of the auto industry in western China, said Jochem Heizmann, CEO of Volkswagen Group China, as the first Xinjiang sedan production line started operations.
In 2012, Volkswagen produced 2.6 million cars in China. Sales in China accounted for nearly one third of the company's global total.
Heizmann earlier told Chinese media that by 2018, Volkswagen's annual capacity in China will reach at least four million vehicles.
"The Urumqi plant will help Volkswagen maintain a 20 percent market share in passenger vehicle sales in China," said Meng Yongsheng, associate professor of finance and economics at Xinjiang University .
Meng said the Xinjiang plant is only step one in the Volkswagen's plan to move out of the Yangtze River Delta and settle in the booming west.
Xinjiang covers an area of 1.6 million square kilometers, making it China's largest provincial-level administrative region. The auto market is flourishing as the roads linking Xinjiang to neighboring central Asian countries and inland provinces have been completed in recent years.
In Urumqi, the number of cars doubled from 200,000 in 2009 to 400,000 in 2011.
The German company is not the only auto maker with designs on the west. Hyundai, from Republic of Korea, has set up a passenger vehicle base in southwest China's Sichuan Province.
Between April 2012 and May 2013, at least six automobile manufacturing projects have chosen west China, with total investment exceeding 36 billion yuan.
Experts say auto industry's westward movement is the epitome of a new round of Chinese manufacturing growth, with a transfer from east to central and west China.
Bordering on eight countries, resource-rich Xinjiang is especially alluring for manufacturing enterprises.
Chinese manufacturing giants, including SANY, Shaanxi Automobile Group, Dongfeng Motor and XCMG, have already set up their plants in the region, planning expansion into Central Asia and Europe.
According to the regional statistics bureau, growth of 12 of 31 sectors in the manufacturing industry exceeded 50 percent in 2012 in Xinjiang. Total industry investment increased by 36 percent year on year.
"Low costs, rich resources and favorable policies are the reasons why enterprises are going west in a steady flow," said Meng.
The National Development and Reform Commission, the country's top economic planner, encourages auto makers to build plants in central and western provinces and regions by offering favorable conditions, including tax breaks.
Land prices in central and western areas are half or one third of those in east China. In addition, "infrastructure in the area is better than some southeast Asian countries, including Cambodia and Vietnam, which also have a cheap labor force," said Zheng Yongnian, head of the East Asia Institute, National University of Singapore.
Enterprises also value the consumption potential of western cities.
Cities with a population of one to three million people are considered small, but they are big cites compared to those in Europe. In these "small cities," there are only 20 cars for every 1,000 residents, which means the consumer market will be huge for a long time into the future, said Heizmann.
